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File Validation Utility (FVU) 4.2 and 2.138 – Applicable from 26th April 2014

It’s the start of Tax compliance Season  and as with the last 3 quarters, there is a new FVU. NSDL came out with the latest  utility on 25th April 2014 late evening

FVU Applicability

Date Applicable from FVU Version
From 26th April 2014 4.2 & 2.138
Till  25th April 2014 4.1 & 2.137

Through the new FVU  the following changes/validations have been brought in place:

NIL Returns

Applicable Forms – 24Q

  • A Deductor would now be able to file NIL returns for all years
  • Since FVU 4.0, there was a lot of confusion on the filing on NIL returns
  • It’s still not clear whether NIL returns need to submitted for other Forms

Unique Acknowledgement Number (UAN)

Applicable Forms – 27Q

  • UAN refers to the acknowledgement received on successful filing of Form 15CA
  • The new utility now allows a User to key in alphanumeric values from 12 to 15 characters

Validation in the absence of Deductee’s PAN

Applicable Forms – 24Q

  • It’s well understood that, in case a Deductee doesn’t have a PAN, TDS needs to be deducted at higher of 20% or applicable rate.
  • This point was not being checked till the previous FVU filings.
  • Henceforth, the new Utility would now be validating this feature (i.e – If a Deductee does not have a PAN, and if the TDS deducted amount is less than 20%, the FVU would show an error

* Points expressed here are the Author’s interpretation. This cannot substitute Expert advice

Perquisite Valuation :Interest free concessional loan

Rule 3(7)(i): Interest free / concessional loan

Any loan given free of interest or concessional interest shall be a taxable perquisite and calculated as follows:
• Interest calculated at the rate charged by State Bank of India as on 1st day of previous year on loan
for the same purpose. This is to be calculated on maximum outstanding monthly balance.
• Less actual interest paid by employee.
Exceptions

• Loan upto Rs. 20,000.
• Loan for medical purposes for prescribed diseases
Steps to calculate value of Perquisite
Step  1 : Calculate maximum outstanding monthly balance at the end of every month
Step 2 : Find out rate of interest charged by SBI as on 1st April of previous year in case of similar loan
Step 3 : Calculate interest on amount as per Step 1 @ Rate as per Step 2 for each month
Step 4 : Total of interest for the year as per Step 3
Step 5 : Less : Interest charged from employee
Step 6 : Balance amount is the value of perquisite in respect of interest free / concessional loan

TDS calculation for employees without PAN u/s 206AA

Section 206AA requires TDS deduction at prescribed rates or @ 20% , if deductee does not submit valid PAN. The example below shows how to calculate TDS in such cases

Amount
Taxable Salary for the year 270000
Less : Interest on home loan -20,000
Less : Deductions under chapter VIA -70000
A Taxable Income 180000
B Tax at Normal Rate 2000
Add : Education cess @ 3% 60
Total tax at normal rate 2060
C Tax @ 20% u/s 206AA  on [A] 36000
D TDS to be deducted 36000
Higher of [B] or [C]

It is apparnet from the above example that

  • Total taxable income is to be calculated after allowing deductions under chapter VIA and home loan interest
  • Tax is to be calculated at prescribed rate and education cess is to be applied
  • Tax u/s 206AA is to be calculated on taxable income . No need to add education cess.
  • Tax at normal rate or u/s 206AA, whichever is higher will be considered for TDS purposes

Will penal rate be applied even if taxable income is below Rs. 1.60 Lacs

  • If taxable income of employee does not exceed the exemption limit but he has not submitted PAN, should TDS be deducted @ 20% u/s 206AA. ?
  • In response to a query, eminent author Dr. V. K. Singhania has opined that, in such a case TDS has to be deducted @ 20%,  In case PAN is furnished, the rate will be 0%.  Ref – [2010] 18 CPT 117
  • A contrary view is that the in such case there is no need to deduct TDS.
  • However, CBDT may clarify this issue in the annual circular about TDS  on salaries. ( Last such circular is Circular 01 /2010 ) .Deducting TDS in such cases will cause undue hardship to employees